ROI (Return on Investment)

The term ROI is the acronym of the English expression Return On Investment. ROI is a financial KPI that allows us to understand the profitability obtained from a project, investment, marketing campaign, etc.

ROI, in a few words, allows us to discover what has been generated for each euro that has been invested in, for example, an email marketing campaign. The relationship between the money invested and the money generated by that investment.

1. How to calculate or measure ROI?

Calculating ROI is not difficult, you can use this simple formula:

ROI = ((Ingresos - Gastos) / Gastos) x 100

Let’s take an example, where we have made an Ads campaign worth 1,650 euros (total cost of time invested, cost of the campaign in Ads, payment to the graphic designer who creates the design and the copywriter who creates the texts), and thanks to it we have achieved sales of 9,500 euros.

ROI = (9.500 - 1.650 / 1.650) x 100

Therefore, for every euro spent, we have made 4.75 euros (4.75:1 ratio). And in percentage terms, a 475.75% return on investment.

It is estimated that, in digital marketing campaigns, the acceptable ROI is between 4:1 and 6:1, i.e. for every euro invested, you should make between 4 and 6 euros. Many marketers agree that a ratio of 10:1 is considered a great result. If the result is lower than this data (less than 4:1), we can say that the digital marketing action has much room for improvement.

• Revenue. Revenue is understood as the money collected from the sales generated by the campaign.

The ROI can be calculated more precisely by area, for example by separating the money obtained from a campaign, taking into account only the sales generated by email marketing campaigns (only the sales generated by this means, separating them from the total of those obtained).

• Expenses. In this case, we are talking about all the money spent for creating and running the campaign.

Therefore, it is necessary to be as precise as possible, so that the ROI obtained is as real as possible. For this purpose, it is necessary to take all the different aspects into account, such as: personnel expenses (hours invested), cost to display the ads in the desired platform, website hosting, subcontracted personnel, etc.

2. The importance of ROI

It goes without saying that ROI is a vital metric that will help business managers to understand whether they are on the right track or not. Calculating the ROI for each campaign is also of vital interest for several aspects:

• It helps the marketing department to set real goals and objectives.
• By analyzing the ROI of different actions, it is much easier to improve the ROI generated in subsequent campaigns.
• It is an indicator of quality and a tracking tool that will give you information on the time and money you should invest in different marketing campaigns.
• It allows you to know if the results were positive or not.
• You can also track the results of different campaigns and spend more in actions that will bring you better results.